CapEx spending is up 9 fold in 3 years, the bulk on equipment for a few key suppliers
When Apple (AAPL) reports an uptick in its cash and marketable securities holdings — up $5.4 billion to $81.6 billion last quarter — Bernstein’s Toni Sacconaghi can usually be counted on to call for the company to return some of that cash to the shareholders (70% of whom happen to be institutions like the ones he represents). See for example Don’t be fooled by calls for Apple to declare a dividend.
But instead he issued a report to clients Monday that took a close look at what Apple is actually doing with its massive cash hoard.
Like several analysts before him, he’s struck by company’s projected $7.1 billion spending in 2012 on what it calls non-retail capital expenditures. He describes it as “staggering by any measure” and notes that it … (I quote)
(1) could hypothetically be used to construct two modern chip fabrication facilities from scratch;
(2) exceeds the last twelve month capital expenditure of all but 3 of the large technology companies that we examined; and
(3) represents a 78% Y/Y increase and more than a 9-fold increase over the last three years.
He also notes that Apple has said that the majority of its $3.4 billion year-over-year increase in CapEx would be spent in its “operations area, particular tooling.”
This leads to a key paragraph:
We estimate that the majority of Apple’s FY12 non-retail capital expenditure ($3.8B – $5.8B) will fund tooling equipment dedicated to Apple’s use but residing in supplier facilities, as in the case of tooling used to manufacture unibody enclosures for Macbooks. The machinery will be carried on Apple’s balance sheet, and used to produce components exclusively for Apple. We do not believe the machinery is at its ODMs [original design manufacturers] (i.e. Hon Hai). Instead, the high level of capital expenditures points to partners in one or more areas of key component manufacturing: NAND, displays and/or processors. Likely partners include Sharp, Toshiba and Samsung. (emphasis ours)
The irony, which Sacconaghi does not remark upon, is that Apple and Samsung are in the midst of a bitter and enormously expensive worldwide legal battle, having filed, at last count, 20 intellectual property lawsuits against one another in 12 courts in 9 countries on 4 continents.
Talk about frenemies.
